Good morning, and welcome to the Fourth Quarter 2015 Anadarko Petroleum Corporation Earnings Conference Call. All participants will be in a listen-only mode. After today's presentation, there'll be an opportunity to ask questions. Please note this event is being recorded.

I would now like to turn the conference over to John Colglazier. Please go ahead.

I need to remind you that today's presentation includes forward-looking statements and certain non-GAAP financial measures. We believe that our expectations are based on reasonable assumptions; however, a number of factors could cause results to differ materially from what we discuss today. So I encourage you to read our full disclosure on forward-looking statements and the GAAP reconciliations located on our website and attached to last night's earnings release. Additionally, as we always do, we've provided more detail in the Quarterly Operations Report on our website.

I'd like to take a moment and thank Robin Fielder for the contributions she's made to the IR team and her efforts over the last year-and-a-half. She's transitioning back to the operations group and Shandell Szabo, a geologist with experience across the company, is joining our team and she's looking forward to taking your calls after the call today.

At this time, I'll turn the call over to Al Walker, and we'll open the lines in a few minutes for Q&A with Al and our executive team following his remarks. Al?

R. A. Walker - Chairman, President & Chief Executive Officer

Thanks, John. And I'd also like to take a moment and just say, Shandell, welcome to the organization that John has built, and also introduce Mitch Ingram. Many of you know Mitch joined us in the fourth quarter of last year as EVP of LNG, coming to us from BG Group where he's an Executive Vice President of the technical aspects of the company, as well as a member of the executive committee. Mitch's background with BG includes many accomplishments. Most noteworthy is the accomplishments he achieved associated with their Queensland Curtis LNG project.

Additionally, I'd like to say how proud I am of our employees who served and proved more than once through the challenges of last year just how great they were at navigating the uncertain price environment we anticipated as we entered 2015. Through their combined efforts, we outperformed our initial expectations by increasing our higher margin oil sales and volumes while spending significantly less capital and improving our cost structure and enhancing efficiencies. We also closed $2 billion of monetizations.

Additionally during the year, we reduced our capital spending by almost 40% and oil prices fell by almost 50% over that time horizon. We organically replaced more than 130% of our production with reserve additions at a cost of about $14 per BOE. We also significantly increased the percentage of our reserves and the proved developed category to 80% at year-end 2015 compared to 69% at the end of 2014. These achievements position us well to manage through the market uncertainty and volatility we see in the coming years.

As I mentioned in last night's news release and later this month, we will recommend a capital program to our board that reflects our view of 2016 and beyond. Our preliminary expectation is that APC will spend about $2.8 billion this year which is roughly half of what we spent in 2015 and 70% less than our expenditures in 2014.

As stated on other occasions, we will favor value preservation and allocating this capital and as such, our short-cycle U.S. onshore investments will be impacted the most. Frankly, even with two of the best assets in North America, we don't find the returns in this environment to be compelling. Therefore, we are choosing to fund a reduced program in the Wattenberg field and only a delineation and a lease preservation program in the Delaware Basin as we seek to preserve the shorter-cycle opportunities for a better day.

Even with these reductions, our total sales volumes across the company are expected to only decline by 1% to 4% on a divestiture-adjusted basis, with lower margin gas volumes accounting for all of the decline. We expect to keep our divestiture-adjusted year-over-year oil sales volumes and the year-over-year Q4 exit rate oil production relatively flat.

Given our materially lower capital plans for 2016, this is very noteworthy and a result of exceptional efforts by our employees. We plan to achieve this through starting the production of the Heidelberg spar much earlier than expected, continued outperformance at Lucius, the TEN complex in Ghana coming online as expected in Q3, and an increased focus on our Ghana tieback (05:25) opportunities.

Leveraging our infrastructure enables us to deliver these incredibly capital-efficient tieback opportunities which we believe generate rates of return of 30% to 100% even at today's prices. We will also continue to seek innovative ways to monetize assets this year. We already have greater than $1 billion of monetization opportunities that are at very advanced stages with no current plans to monetize more of our ownership in WGP in this environment.

As we have done historically with great success, we plan to continue actively managing our portfolio this year and have other monetizations identified which will be pursued through the course of the year. The quality of our balance sheet remains a key objective. For the flexibility provided by our reduced capital program, the ongoing benefits of an improved capital and cost structure and our pathway to several near-term monetizations, we are very confident in our ability to maintain or decrease Anadarko's net debt levels this year while spending well inside of our cash inflows.

We look forward to going into greater detail about our capital plans and expectations for 2016 on our March 1 call, which we look forward to doing as soon as possible, but March 1 will be here soon enough. During these times and more than ever, our company's culture, its employees, its track record and its approach to value creation matter and we believe these are all competitive advantages for Anadarko.

With that, we'll open it up for questions.

Question-and-Answer Session

Operator

Thank you. We will now begin the question-and-answer session. Our first question is from David Tameron of Wells Fargo. Please go ahead.

David R. Tameron - Wells Fargo Securities LLC

Morning. Al, I think you just addressed it there, but obviously the big concern in the market has been the ability to maintain the investment-grade status and that's caused a lot of noise in the share price. Any more detail you can give? It sounds like you've got $1 billion teed up, and what else? Can you give any other color around that?

R. A. Walker - Chairman, President & Chief Executive Officer

Yeah, Dave. I think we see the over $1 billion of monetizations doing a lot to address the question of how we're going to fund this year activities with cash. Bob's been spending most of the quarter to-date with lots of different issues associated with the question you're asking so I probably will, if you don't mind, defer that question to him.

David, great question. Obviously, everybody has seen that both agencies are taking down their price cases again. Moody's placed essentially the entire sector on review. We've provided them some preliminary numbers. We're going to continue to work with them in the coming weeks and coming out of our board meeting next week to make sure they have the most recent and updated information available.

Now, this is all part of normal course this time of year, although usually all that is done after our investor call. And we would hope and expect that the agencies are going to apply their historic standards and their historic methodology in their current analysis. And on that basis, if they do so, we believe that we're soundly investment-grade and we'll become even more so as we execute the 2016 plan and the monetizations beyond that initial $1 billion-plus that Al referred to.

Obviously, there's a lot of folks that are talking to the agencies, a lot of rumors out there. We can't predict at this stage what we think their actions are going to be. We can only control the things we can control, but we believe that the plan that we have, easily identifiable and transparent, maintains an investment-grade rating with all three of the agencies and puts us in a position to continue to execute the plan and refinance the debt that's coming due later this year.

David R. Tameron - Wells Fargo Securities LLC

Okay. I have one follow-up. I'm going to jump to ops, and thanks for the color on that. If I think about short-cycle, I think about the Gulf of Mexico. Can you just tell me – obviously short-cycle U.S. production, but how do we think about Gulf of Mexico start-up there, kind of what volumes are you going to be adding there? And I assume those are still – those – with some of the tiebacks, those are still in the plans for 2016.

R. A. Walker - Chairman, President & Chief Executive Officer

David, very understandable question and I think you can appreciate that what we're trying to do today is paint the picture for more details that will come in March. But I think Jim could give you an example of a tieback opportunity just to give you some color around the black and white

James J. Kleckner - EVP-International & Deepwater Operations

Yeah. This is Jim. And let me just give you a brief overview of some of the fields that we have. We have fields that are close to infrastructure that we can tie back at relatively low cost. One of them is Caesar/Tonga, and this field ties back to our Constitution spar. It has a ribbon-like structure with a lot of undeveloped reserves that for relatively low cost, we're able to drill and complete and tie back quickly wells that produce upwards from 6,000 barrels to 10,000 barrels a day. So Caesar/Tonga offers those tieback opportunities.

And we have two wells, one has been drilled and is in the completion phase. The other one has been drilled and we'll be completing here into 2016 and bringing that on production here in the third quarter of 2016. So that's an example of some of the tieback opportunities we have that are relatively short-cycle.

David R. Tameron - Wells Fargo Securities LLC

All right. Thanks. Appreciate all the answers.

R. A. Walker - Chairman, President & Chief Executive Officer

Thank you, David.

Operator

Our next question is from Doug Leggate of Bank of America. Please go ahead.

Doug Leggate - Bank of America Merrill Lynch

Thanks. Good morning, Al. Good morning, everybody.

R. A. Walker - Chairman, President & Chief Executive Officer

Good morning.

Doug Leggate - Bank of America Merrill Lynch

Al, you've – the whole Anadarko investment case has, I guess, been predicated over the years with the balance you've had in your portfolio between short-cycle and long-cycle projects. In this environment, how do you plan or pace or think about things like Shenandoah, Yeti, Paon, Mozambique given the uncertainty in the oil price? How do you think about how you continue to execute on those and basically get market recognition for the value?

R. A. Walker - Chairman, President & Chief Executive Officer

Well, Doug, as always, you ask really good questions and I appreciate your question a lot. I think as we think about 2016 and taking the comment that's been made about trying to preserve value, when you consider – I believe this year, we would estimate that our maintenance CapEx is going to be about two-thirds of what it was in the prior year for maintaining volumes. You couple that with – we anticipate our oil volumes being relatively flat through the year that only the decline we see on a divestiture-adjusted basis coming from gas. We believe that at some point when growth matters again, we're prepared to go back to growth, but I think by lowering that maintenance CapEx two-thirds or two-thirds rather of what it was the prior year, that's pretty impressive in terms of being able to create that value preservation that we're looking for.

I think these other longer-dated projects we believe today are worthy of spending capital, expecting that oil is not going to be at $30 for the rest of our life. And at some point, when we make a decision to take either to sanction or FID any of these longer-dated projects, it will be an environment which we believe we can recommend to our board first that we make that investment. So I think that's the confidence I would have if I were an investor, that we will do that when it's appropriate.

Doug Leggate - Bank of America Merrill Lynch

I appreciate that, Al. I'm probably going to get in trouble with Mr. Colglazier for this one, but I'm going to have a go anyway. This is the first call you've had since the events of November. I know that there's obviously some issues around debt maturities and stuff like that that perhaps some people think it's weighing on the balance sheet but on the share price. Our feedback is probably just as much about whether there is still an active acquisition appetite at Anadarko. So I wonder if you could maybe just take a minute to just give us an explanation as to why you thought the Apache deal was attractive to Anadarko and put those concerns to rest maybe once and for all. I'll leave it there. Thanks.

R. A. Walker - Chairman, President & Chief Executive Officer

Okay. Well, I thought you were probably talking about the MLP meltdown in November. I didn't anticipate you were going to ask me about the other.

Doug Leggate - Bank of America Merrill Lynch

No.

R. A. Walker - Chairman, President & Chief Executive Officer

I think really the comments that we made back in November associated with the press release that day is about all I have to say on that matter. There really isn't anything else that I could add to it. In addition, I think we continue to make the comment; I'll reaffirm it here. And the acquisitions that we're most interested in have to do with areas that we have focused areas of concentrated operations, be that in the DJ Basin or in the Delaware Basin. Very competitive places in which to buy things, but those are the focus that we would have today.

But I also believe that the things that we're trying to do to take 2016's environment and making the most out of it is probably the most important agenda at hand. I think getting through this year, being able to keep our oil volumes flat on a divestiture-adjusted basis, the only reduction we see in volumes coming through gas properties that we're not investing in this market, those are the things I think we will do this year while preserving the balance sheet and looking at it as a key objective for improving the quality where we can. Because I made the comment earlier and I reaffirm it here, I think we believe we can maintain net debt at a level that it's at today, if not reduce it further, while still meeting the capital objectives that I laid out this morning.

Doug Leggate - Bank of America Merrill Lynch

I appreciate you answering the question. Thanks, Al.

Operator

Our next question is from Evan Calio of Morgan Stanley. Please go ahead.

Evan Calio - Morgan Stanley & Co. LLC

Hi. Good morning, guys, and impressive cuts here. A follow-up on the monetization program, the $1 billion that you referenced, I mean are those producing assets? And could you provide any color on the asset market and your confidence and ability to execute in 2016?

R. A. Walker - Chairman, President & Chief Executive Officer

Well, let me just say at March 1, we'll go into a lot more detail, but let me – because since all of that reports into Bob, let me defer to him on that one.

I think without going into detail, some of the assets that we are looking to monetize in the near term are producing assets. Some of them are not. And it'll take greater shape as we announce them either at March 1 or between now and March 1.

I think it's fair to say that these assets generally share the characteristic of our asset sales in the past and that is that they have sound economics, but not economics that rise to the point that they would get funded relative to our other portfolio opportunities over virtually any commodity cycle. And so, much like the assets that we sold last year and monetizing $2 billion, they're not things that are going to be material to the company's future, the company's growth or they may not be of a size that's material to a company of our scale and our expectations for the future.

So we've got a long list of them, but as Al mentioned, there are some that are near-term higher probability that we feel very comfortable in executing and when added to our discretionary cash flow would exceed the $2.8 billion number that we talked about today.

Evan Calio - Morgan Stanley & Co. LLC

That's great. But could you also provide some color on your DUC completion strategy assumed in this flattish production profile on a significantly lower CapEx? And are those assumed deferred like your drilling program or is there any change there as you think about 2016?

Evan, this is Darrell. Yeah. As we look at our iDUCs, obviously, reduced capital is going to impact that some. And as Al spoke later, I mean we looked at this from a portfolio standpoint. And I think as we look at the iDUCs, we fully anticipate we will not get through the existing iDUCs that we have in 2016, which really sets us up great for 2017.

So, again, we'll talk a little bit more about it in the March call, but I think it's – this is going to benefit 2017 but, no, we will not get through our complete iDUC inventory.

Evan Calio - Morgan Stanley & Co. LLC

Let me see if I could just slip just one last one in here. I mean, you guys have correctly been more cautious on the commodity outlook since early 2015. And given your production resiliency and ability to do significantly more with less and similar trends in the U.S., I mean are you preparing for a down cycle that can last well into 2017? Or can you share any of your macro outlooks at least in regard to how you're setting up the company right now?

Well, if I can take a minute and I'll play Al and look through the looking glass. Yes, we do think the current environment that we're in will probably be protracted. We have concerns of events here that really are well beyond our control. And consequently, until we see events stabilize and we see oil prices in particular take on a new supply-demand dynamic than it's currently in the market or anticipated in the near future, we will continue to be a very cautious investor in this environment.

And you're right. You go back to this call a year ago, I think we were very concerned that this was going to be much longer in its recovery period than it tends to but at that time, people tended to think might be the case.

And we also go back to prior periods in history when some of us have been around the oil and gas business a long time. Typically, when you go into a down cycle, you come out of a down cycle with a pretty good price increase. We are a little concerned that this time, there is one dynamic we've never had previously and that is shale response and a short-cycle investment to a rising price environment has not been in the equation previously, and that will probably add to greater volatility in the coming years than we have certainly seen in the last five and I would even say in the last 30. We've just not seen shale in its short-term inventory and its ability to respond to prices in the same way we do now.

Now, I'm not trying to paint a picture that looks like North American natural gas because here, we've got 94 million barrels a day of demand being maybe oversupplied 1.5 million to 2 million barrels a day. That's a very different environment than natural gas in North America and so it could correct itself. But as prices move up and the intersection of supply and demand improves prices over time, it'll largely come from a supply contraction in the near term, not from a demand response.

I think all of us and I think most importantly, most economists have been very surprised at the very limited demand response we've seen by lower petroleum product prices around the world. So, it's for those reasons that I think we're taking again this year and into 2017 a very cautious approach.

Yes. These are probably two longer-term questions. Just in the Gulf of Mexico, obviously, Shenandoah I think you still got one more well you want to drill there. People are still saying, look, we're waiting and seeing to see how low things like facilities costs can go. But I'd appreciate any update in terms of the prices you think would be required to get something like a Shenandoah or, say, a Yeti over the line.

R. A. Walker - Chairman, President & Chief Executive Officer

Let me take part of that. Today, we are not drilling with a view that we would develop Shenandoah in a $30 price environment. So, I think you can probably frame the issues is that as we've appraised, and Bob can – is going to walk you through kind of where we see the next step in appraisal here, taking a final investment decision or a sanctioning here is not something that will happen in 2016 and if prices when we do – when we are looking at the commerciality of this particular development will be considered as the part of how we think about investing the capital under development. So the two are very separate.

So I think I'd like Bob to talk to you a little bit about what we're seeing from the appraisal perspective, but I think if you're concerned about us taking a sanctioning or final investment decision in a $30 price environment for Shenandoah, I can put that one to bed pretty quickly.

Yeah. This is Bob. So we just finished the Shenandoah-4 appraisal well located off to the west of our previous activities. We found over 620 feet of high-quality oil pay in that well. We're very pleased with it. We also were able to get about 550 feet of core. That's important for planning what that development could look like. So that's going to be analyzed, turned over to the reservoir engineers as they put together a scenario for how we might develop that.

At the same time, we're looking at drilling Shenandoah-5. We think that's a well that's required. It's off to the east. It'd be kind of between Shenandoah-3 and the original Shenandoah-1, up-dip of Shenandoah-3 which was wet well but encountered very, very good sands, kind of gave us a down-dip limit on the eastern side. So that well should spud here in this first quarter. We have high expectations for it, but we need to drill the well and see. That's what appraisal's all about.

Meanwhile, the guys are taking all the information that we obtained from this, rolling it into conceptual planning as to what resources we may be able to recover, how much it might cost, those type of things. And as Al said, we're long ways from sanction at this point. If Shenandoah-5 is successful, we may move even farther to the east with a Shenandoah-6 but, of course, that will be all dependent on what happens at Shenandoah-5.

Yeti, we're pretty much done at Yeti with the assessment of it. We drilled the initial well, had success there in the Middle Miocene. Good oil pay, good reservoirs. We went down-dip with a sidetrack and encountered the water so that we got a good handle on where the oil-water contact would be. So we got a fairly good limit on that side of it.

We then drilled the Yeti-3 well, which was really an exploratory well with a down-dip tail to get some information on Yeti, but we didn't think it was going to be particularly good well from a hydrocarbon prospectivity in the original Yeti discovery. The upper zone that we were targeting had very good sands but it was wet. But we were then able to go down to the Middle Miocene, get a core across that interval. So, again, get the information that's needed for the teams to put together their development plan.

This is going to be a very nice tieback into one of the existing nearby infrastructures and so the folks are working on that. But again, they've got a lot of work to do. And then the commodity prices have to cooperate along with service costs to make sure that that's economically viable project when we do decide to move forward with it.

Thanks. My second FID-related question is around Mozambique. I mean, it feels like you guys have been doing a lot of work and making a lot of progress. I mean, maybe just a run-through of what I's need to be crossed and T's dotted or the other way around to be ready to move forward with our projects subject to markets.

R. A. Walker - Chairman, President & Chief Executive Officer

Well, I'm going to ask Mitch Ingram, if he wouldn't mind, to kind of maybe give you an overview of where we are. But I think similar comment that I made as it relates to Shenandoah would be appropriate for Mozambique and that we've got a lot of things that we and our partners and the government need to work on.

And with that, Mitch, if you would, just give them a little bit of an overview.

Mitchell W. Ingram - Executive Vice President-Global LNG

Okay. So we continue to make progress with this project. At the end of last year, we reached agreement with the government on a number of important issues to drive value certainty. And in 2016, we hope to conclude our negotiations with the government on the key agreements, together known as legal and contractual framework. And we hope to make further progress with the customers and financiers who underpin the project.

To make the decision on FID, all three elements are combined and these are linked, which will then provide a certainty through project and allow us to realize significant value.

Our next question is from John Herrlin of Société Générale. Please go ahead.

John P. Herrlin - SG Americas Securities LLC

Yeah. Hi. Two quick ones. Al, you talked about innovative financing regarding the monetizations. Can you be more specific? What's innovative?

R. A. Walker - Chairman, President & Chief Executive Officer

Well, I think we've done some things in the past, John, that were a little bit different than others by the drill to earn, things that we achieved both onshore initially in the Marcellus and later in the Eagleford and then we took it into the deepwater and then into Mozambique.

One of the things I take a lot of comfort in as well as a lot of pride that Bob Gwin and our financial organization do a lot of things I think that are leading edge and I think we will find some innovative different ways to approach the way in which we look at funding our capital needs. That's not to imply that we're going to get out ahead of things with stuff but rather to be innovative. And I've always believed that one of the competing differentiators for Anadarko has been our abilities to be ahead of the curve on finance. And, Bob, you're welcome to weigh in with any comments you'd like in addition.

Okay. That's fine. Next one from me, you said, Al, that we're going to be in a world with greater product price volatility, shorter cycles, et cetera. Does this mean going forward that you may contemplate reducing the long-cycle business or perhaps taking more of a consortia approach going forward for things like deepwater plays?

R. A. Walker - Chairman, President & Chief Executive Officer

Well, I would say in the near term, John, our focus on tiebacks could be part of that answer. I think greenfield project development, unless we have a substantial estimated ultimate recovery from some of our exploration activities, do make it a little more challenging.

One of the things I think we've done a good job of is we've developed various things as being able to fund the market to take the development component of our finding and development costs. Whether that market is always there will be a function of the economics.

I think as we come out of the cycle and we certainly at some point will and to what extent, we'll find out. I think in the near term as we come out of the cycle, we will move back to a higher weighting in our short-cycle inventory and move the weighting that we've moved the last couple of years into intermediate and longer-cycle investing and shift that back to short.

That in part will have something to do with what we believe will be attractive rates of return we can get from our short-cycle investing. So the two of those would be taken together, but the volatility is something I think we as people who have to look at this every day is going to be a lot different the next 5 years, maybe 10 years than it certainly has been in the last 5 years or 10 years.

John P. Herrlin - SG Americas Securities LLC

Thank you.

R. A. Walker - Chairman, President & Chief Executive Officer

You bet. Thank you.

Operator

Our next question is from Ryan Todd of Deutsche Bank. Please go ahead.

Ryan Todd - Deutsche Bank Securities, Inc.

Great. Thanks. Good morning, gentlemen. Maybe if I could ask one, can you talk a little bit about the utilization of your rigs over the next couple of years? You've got a number rigs under contract. You're obviously still drilling on – doing appraisal work at Shenandoah. Can you talk about how you might use the rigs in terms of appraisal versus exploration over the next 12 months to 18 months?

James J. Kleckner - EVP-International & Deepwater Operations

Hey, Ryan. This is Jim. And our rigs, the five we have under contract right now, one is in Côte d'Ivoire running an exploration program. We anticipate that rig to stay in CI and then return back to Colombia to follow up on some exploration/appraisal activity. The other four rigs are in the Gulf of Mexico and they have various expiration date terms.

And so what we'll do is utilize those rigs through contract on various appraisals and tieback opportunities that we talked about earlier. And some of those are the Heidelberg field drill-out that we've continued to see positive results in and, of course, had early first production on. And then in K2 infill well opportunities, which are another example of short-cycle tieback opportunities like Caesar/Tonga. So we'll keep the rigs busy there, as well as additional drilling in Lucius as we see expansion opportunities there and potentially Phase 2 expansion in Caesar/Tonga for additional reserve developments.

Ryan Todd - Deutsche Bank Securities, Inc.

Great. Thank you. And then maybe if I could ask on the dividend, I mean how do you think about the dividend and its place in your cash spend in a constrained capital environment?

This is Bob. I mean, the dividend, it is costing us about $550 million a year currently. Obviously, there are other things we could do with that cash in the current environment yielding, say, 3% with the movement in the stock price. That's a bit higher than we would normally target for the dividend.

Though we've got a board meeting next week and obviously the decisions around the dividend are solely theirs. We'll be talking to them about the overall financial picture and the cash flows during the year and we'll see, as we come out of that, where we are relative to the appropriate level of dividend. I certainly do not expect us to eliminate the dividend. That's a question we've gotten in the past. I don't think that's an appropriate step, but the current yield is certainly higher than we would have targeted in a much higher stock price environment.

Ryan Todd - Deutsche Bank Securities, Inc.

Okay. Thank you.

Operator

Our next question is from Charles Meade of Johnson Rice. Please go ahead.

Charles A. Meade - Johnson Rice & Co. LLC

Yes. Good morning to everyone. I was wondering if you could – perhaps, Bob, could give us a narrative of what you've learned and seen at Colombia over the last – the Calasu well over the last few months? And if what you saw with that well, particularly with your modeling of the basin and perhaps if you learned anything on the geochemistry side?

Yeah, Charles. This is Bob. I talked about the Kronos well on our last call where we found 130 feet to 230 feet of gas pay that looked to be biodegraded thermogenic oil based on the geochemistry. Everything that we've done on the geochemical side is holding up with that type of an interpretation. The Kronos well was not as – didn't have as well developed sands as maybe we would've hoped, although the objective section does look like it blooms out to the north in a much better area and we'll be testing that this year.

As you move 100 miles to the north of Calasu, we're moving closer to what we looked at the depot center, which is a Magdalena fan system. We're very peripheral to it at Kronos, but in the Calasu, we're getting into a much more proximal portion of it. We saw excellent sand development at Calasu. We had about 17 meters of gas pay in one of the sands. We're working the geochemistry on it to see.

As we went deeper in the well, we seem to be getting evidence of heavier components, but we didn't have any significant accumulation to speak of as we went further down. And the temperature data seem to confirm our interpretation as we move from Kronos up towards Calasu. The overall basin gets warmer, but it's still a very cool basin. So that still speaks to the most likely generative pays being oil in the areas that we're looking.

So we're encouraged by what we've seen. We've learned an awful lot. We're now stepping back and deciding what it means to us in the Grand Fuerte area. At the same time, we acquired a big 3D up in the COL area last year and we're doing Phase 2 this year. And what we're seeing up there is really exciting and has also – given the ties that we have from the previous two wells when we take that up into the COL area, it gets us very excited about the prospectivity of the COL area.

And so, Colombia has got a lot more to do. We got a lot of good data and so we're rolling that in. We're over at Paon right now. We're got quite a bit of activity at Paon. It's going to take us into the second half of the year. But when we're done there, the rig will come back into Colombia and drill what we call our Purple Angel well, which will be testing the Fuerte area and probably the Kronos appraisal is really what it's targeted, but it's got some exploratory components to it.

Al, if I could go back, this is – I think a couple of people tried to take a crack at this already, but I'd like to take one more shot. I was struck by one of the – some of the word choice in your quote in the press release specifically said in 2016, greater market dislocation appears likely. Can you elaborate on what dislocation is? My first instinct is that you're talking about commodity prices, but as I looked at it the second time, I thought maybe you could be talking about the dislocation between service costs and the commodity price or some other thing.

R. A. Walker - Chairman, President & Chief Executive Officer

Yeah, I think it's more the latter. To help you just a little bit there, I mean, if you go back and think about what it takes, I mean we're not really in the revenue business; we're in the margin business. And so in this price environment, we have a dislocation between what it costs to either operate or drill wells versus the commodities that are being provided by the markets.

So that dislocation, we believe, is going to continue. We don't find the margins that we're seeing today to be attractive for the reasons I've talked about this morning. And I think indicative of how we've, over time, done things, our ability with a substantially reduced capital plan, 50% down from last year, 70% down from 2014, being able to maintain oil volumes flat year-over-year on a divestiture-adjusted basis speaks to the quality of a portfolio that has a good mix of conventional and unconventional resources to lean on. But that market dislocation certainly gives us a pause for doing more than the capital spending that we've talked about for the year.

Charles A. Meade - Johnson Rice & Co. LLC

That's helpful, Al. Thanks a lot.

R. A. Walker - Chairman, President & Chief Executive Officer

You bet.

Operator

The next question is from Scott Hanold of RBC. Please go ahead.

Scott Hanold - RBC Capital Markets LLC

Thanks. Good morning, guys. If I could just maybe focus my questions on where do you think the market needs to be to think about spending more capital. And one of the things you didn't highlight but I noticed on your updated investor presentation is that the Wattenberg economics looks pretty compelling. I mean, iDUCs at $25 a barrel and new drills at $30 a barrel. But what price do you need to see in the market sustainable to start thinking about accelerating activity?

R. A. Walker - Chairman, President & Chief Executive Officer

Well, as I've tried as best I can, which maybe isn't exactly to the question, we really can't answer that generically and every asset today has different types of breakevens, every asset has a little bit different characteristics. If you think about our DJ Basin position with a mineral interest underlying it there versus, say, the Delaware Basin where we see ourselves in a very attractive yield stream associated with the hydrocarbons being produced there, we can't just pinpoint a number for you as easily as it probably sounds like we should be able to.

I think if you think back to a year ago when we were at much higher price and we were having hesitation then, we have seen our efficiencies improve. We've seen some costs continue to come down. I think you saw that most recently in the fourth quarter. And I think we'll continue to find improvements around efficiencies. And, again, we're in the margin business; we're not the revenue business. So it really is when our margins return to a level that gives us a wellhead margin that creates an acceptable rate of return asset by asset, that we'll see ourselves going back into our various portfolio opportunities with capital. Until then, we're going to stay at value preservation mode.

Scott Hanold - RBC Capital Markets LLC

Okay. Thanks. Understood. And you made a comment that maintenance capital is about two-thirds of what it was last year. Could you provide some color and context around that? In addition, I think in prior calls, you had mentioned your base declines around 18% or so. Where does that stand as you look into 2016?

R. A. Walker - Chairman, President & Chief Executive Officer

Well, we've done some work on this and I'm going to ask John, if he could, just to give you a little bit of additional information. But a lot of this we anticipate – well, we don't just anticipate; we will go into greater detail on March 1. But today, the number that we think of this maintenance CapEx to keep volumes flat is about $1.8 billion, which is down substantially from prior years and I think very, very reflective of the outstanding work our employees have been able to achieve by reducing that breakeven.

John M. Colglazier - Senior VP-Investor Relations & Communications

Yeah, Scott. I think that kind of goes along with what we're just talking – what your comments were on Wattenberg. I mean having those type of breakevens, having the flexibility we have there with the 120 iDUCs that we built up, again to Darrell's point, it doesn't appear we'll utilize them all this year, but all that contributes and especially taking into account what Jim Kleckner and his guys are doing in the Gulf of Mexico with the tiebacks.

I don't have to – I'm not spending this money this year to get Heidelberg. We already spent most of the money to get the volumes from the TEN complex. Having a full year of Lucius that's outperforming expectations, all that blends in to a much lower capital requirement to keep our volumes flat year-to-year. And to Al's comment in his opening remarks, we expect to be down on a divestiture-adjusted basis plus or minus 1% to 4%.

So it kind of says even then that we're not spending even to the level to keep volumes flat. So I think having the flexibility to still focus on our longer-dated assets and keep the sustainability portion of the portfolio going is a pretty special thing and I'm pretty proud of what we've been able to do.

Scott Hanold - RBC Capital Markets LLC

Thanks. I appreciate the color, guys.

R. A. Walker - Chairman, President & Chief Executive Officer

You bet.

Operator

Our next question is from Bob Morris of Citi. Please go ahead.

Robert Scott Morris - Citigroup Global Markets, Inc. (Broker)

Sorry. My question was already answered. Thanks.

R. A. Walker - Chairman, President & Chief Executive Officer

Thanks, Bob. Sorry.

Operator

And the next question is from Paul Sankey of Wolfe. Please go ahead.

Paul Sankey - Wolfe Research LLC

Hi. Good morning. I guess big...

R. A. Walker - Chairman, President & Chief Executive Officer

Hi, Paul.

Paul Sankey - Wolfe Research LLC

Hi. The big story of the quarter was the Apache story, which obviously had a big impact on your stock price. Could you just look back on that and address it again for us? I assume that you feel that the market perception of what happened there was erroneous and I just wondered if, with the benefit of hindsight, you could add any color. Thanks.

R. A. Walker - Chairman, President & Chief Executive Officer

Paul, I think you can fully appreciate. I think we said all we wanted to say and could say in early November in that press release. I think some of the market activity in our sector had to do with a lot of factors and we were certainly a part of that, but those were external and separate and apart from the event you're making reference to. So, I know you're looking for additional comments from me, but I think we made all the comments we intend to make in that press release.

Paul Sankey - Wolfe Research LLC

Understood. If we could totally change subject, how do you think about hedging now? Would you be more likely to hedge at a lower price higher than here, but at a lower level than you previously would have been? Or are you more likely to simply allow the price to rally and take what the market gives you? Thanks.

R. A. Walker - Chairman, President & Chief Executive Officer

Well, at $30 and $2, just to use big round numbers, I don't think any company has got a motivation to hedge until it's probably a negative cost of replacement. So I'm not sure we or anybody else would find ourselves motivated to lock in prices that are lower than the marginal cost in order to develop.

Paul Sankey - Wolfe Research LLC

Yeah, understand that. At this level, what I'm saying is would you be more inclined to hedge, let's say, at $40 or $45 where previously, we would have talked about $60?

R. A. Walker - Chairman, President & Chief Executive Officer

It comes back to what kind of margin would give us a wellhead. If we're finding ourselves with an attractive wellhead margin that we want to be able to somewhat lock in for a short to intermediate period of time, that would be something that we would find worth spending some time on.

Typically, in the past, we've tried to approach every period. We're taking about half of the hydrocarbon price risk off the table, whether it's natural gas or oil. That philosophical view hasn't changed, but it really comes back to seeing something in the market that gives us that wellhead margin that's attractive to be able to use the derivatives to help us protect the price movements from.

Paul Sankey - Wolfe Research LLC

Understood. Thank you. And then finally from me, it's been put to me that the price of oil, as you mentioned, is so low right now that actually completing DUCs is not economic. Is that fair? And I'll leave it there. Thank you.

R. A. Walker - Chairman, President & Chief Executive Officer

I think in our case, what we see is it's really from a capital allocation perspective. The reason that Darrell is talking about the inventory of DUCs from the beginning year to the end of the year is more reflective of our Heidelberg and TEN longer-term projects coming into production, coupled with the tieback opportunities that we see in the Gulf of Mexico actually having better rates of return. Again, that's just the ability to have a conventional and unconventional mix of resources allows us not to have to lean on assets in an environment that only do well in a short-cycle environment.

Paul Sankey - Wolfe Research LLC

Thank you very much.

R. A. Walker - Chairman, President & Chief Executive Officer

You bet.

Operator

Our next question is from David Heikkinen of Heikkinen Energy. Please go ahead.

David Martin Heikkinen - Heikkinen Energy Advisors LLC

Good morning, guys. Al and Bob, kind of curious about your discussions with your investment-grade bondholders and how they see the rating agencies' potential moves impacting their ability to hot hold, downgraded their non-investment grade debt in their portfolios.

R. A. Walker - Chairman, President & Chief Executive Officer

You bet. Bob is much more capable of responding to your question than I am. I just want to say thank you. I noticed this morning you upgraded us and that's appreciated. Bob?

Thanks, Al. David, obviously, we talk to those bondholders. I'm not in a position to comment on things they might've said about their ability or willingness to continue to hold the bonds. I think they need to – those conversations are best held with the individuals.

I will say that certain of them that I've spoken to are concerned about some of the approaches that Moody's, in particular, might take relative to their historic methodology. Conversations that they've held that caused them to believe that perhaps what traditionally were just subcomponents of Moody's methodology become overriding factors, that there's a political dynamic at work that is not necessarily linear relative to the last several years of an approach that we can all rely upon and that certainly appears to be affecting bondholders' comfort with the current situation.

I don't believe that same dynamic exists with the views of how S&P is taking what I would call more of a traditional measured response to the commodity price environment. But those are all anecdotal types of things that we don't know that they come to pass, but they're the types of things that quite frankly I think our fixed income holders are concerned about and appropriately so. And then all we can really do in that type of an environment is manage as responsibly as we can, continue to do what we've done historically focusing on the quality of the asset, the asset coverage. Obviously, cash flows are impacted in the current environment and that is a temporary dislocation even if it exists longer than a year.

And we've tried to and are continuing to manage the portfolio on what we believe is a long-term responsible basis to provide stability as an investment-grade company to those fixed income investors that have relied upon the way that we have traditionally managed the business and the way the rating agencies have traditionally established their parameters.

R. A. Walker - Chairman, President & Chief Executive Officer

And, David, as you can tell, Bob has no energy around that topic at all.

David Martin Heikkinen - Heikkinen Energy Advisors LLC

None at all. No, we've heard the same kind of institutional disruption particularly tied to Moody's so that's helpful perspective.

And then I know this is a sensitive topic, but your focus on the margins and the current price that the market's providing, I mean how long at this activity level do you maintain current staffing levels? And how do you think about the cycle of building the company up and then where you are now versus kind of where your current G&A is?

R. A. Walker - Chairman, President & Chief Executive Officer

Well, I think you can probably appreciate in what we believe is a protracted commodity environment not only for this year, but for the coming years that we and I think every other company in our industry will take this opportunity to look at the environment, sync up its capital plans, its activity with its workforce needs and I don't think we're going to be any different than anyone else as we go through this period of unfortunate, as I said earlier in response to another question, market dislocation.

David Martin Heikkinen - Heikkinen Energy Advisors LLC

Okay. That's what I thought. And then just very detailed, I guess, what oil volumes do you add at Heidelberg and TEN? I just want to get the numbers that you're expecting.

R. A. Walker - Chairman, President & Chief Executive Officer

David, if you don't mind, I mean we've got – you're going to take away all of the stuff we get to talk about in March if we answer your question. We'll go into a lot of detail in March 1.

David Martin Heikkinen - Heikkinen Energy Advisors LLC

All right. Thanks, guys.

Operator

Our next question is from Brian Singer of Goldman Sachs. Please go ahead.

Brian Singer - Goldman Sachs & Co.

Thank you. Good morning.

R. A. Walker - Chairman, President & Chief Executive Officer

Morning, Brian.

Brian Singer - Goldman Sachs & Co.

Wanted to ask on the minerals interest and your royalty interest in Land Grant. Wanted to see if there's any change to how you're thinking about that strategically and your willingness to monetize that in any way in the context of creative monetization opportunities.

Hey, Brian. It's Bob. No, no change to our messaging over the last couple of quarters in this kind of a commodity price environment and we actually have, I think, put out some numbers on what the royalty income looked like in this past year. It's obviously down pretty sharply year-over-year. It's highly correlated to prices. It's not the type of environment where we would seek to monetize the royalties around oil and gas.

I will point out, though, that an exception to that rule is our hard minerals royalties. We own the largest natural soda ash reserves in the world and we have a fairly nice income stream around those assets that gives us – where we have some flexibility and that market, in particular, in contrast to our fossil fuel commodity prices, that market looks pretty good in today's environment.

R. A. Walker - Chairman, President & Chief Executive Officer

And I'll just say in response to a question I guess John Herrlin asked earlier, I do think Bob Gwin and Al Richey have worked in a very innovative way in their approach to how they'd be monetizing those assets in the near future.

Brian Singer - Goldman Sachs & Co.

Great. Great, thanks. And then just wanted to ask a follow-up question on the drilled, uncompleted inventory. You mentioned you may not complete all of that this year. Can you be a little bit more specific on what you do expect to complete this year as part of the $2.8 billion budget?

R. A. Walker - Chairman, President & Chief Executive Officer

If I can, I know Darrell would love to answer your question. But if we answer your question. I'm going to go back to what I said to David. We're not going to have anything to talk you about on March 1. I think the other thing is you have to appreciate that's all rolled into the capital plan, which we're going to recommend to our board. And until we have that plan approved by our board, to get out in front of them would be sort of inappropriate.

Brian Singer - Goldman Sachs & Co.

Great. Thank you.

R. A. Walker - Chairman, President & Chief Executive Officer

You bet.

Operator

Our next question is from Jeffrey Campbell of Tuohy Brothers. Please go ahead.

Jeff Leon Campbell - Tuohy Brothers Investment Research, Inc.

Good morning, and just to share my appreciation on all the macro commentary that you've made today. First question I wanted to ask is, will you have any potential take-or-pay issues within the Wattenberg in 2016? We recently saw a deal where an operator transferred pipeline obligations from the Wattenberg to the Delaware Basin and some of the DJ pipeline operators have been hurt by declining volumes.

A. Scott Moore - Vice President-Worldwide Marketing

Sir, this is Scott Moore of Marketing. So we maintain a flexible portfolio out of the DJ between our realm of (52:06) pipeline commitments and we feel comfortable in our ability to keep them fully utilized.

Jeff Leon Campbell - Tuohy Brothers Investment Research, Inc.

Okay, great. Thank you. And you mentioned in the Ops Report some confidence that the Delaware Basin recovery will – estimates will increase over time. I was just wondering, this may be a March 1 rejection, but can you add some color on what needs to take place to realize your expectations?

No, we addressed this last quarter, but as we continue to do look-backs, we'll touch on this again March 1. But as we continue to do look-backs, our EURs continue to climb. And so, we're getting a lot of confidence that not only over a small area, but the greater 230 million acres – or 1,000 acres that the EURs are only climbing. So, we still have a lot of work to do as we go into the next year in terms of looking at all the different horizons not only Wolfcamp A and but Bone Springs 2 and 3. But at this point, we're nothing but encouraged.

Jeff Leon Campbell - Tuohy Brothers Investment Research, Inc.

So if I try to paraphrase that briefly, it sounds like the core is expanding.

Good morning. I guess first just returning to the credit ratings questions earlier. I know there's concern about the agency methodologies, which you guys don't control, but you're not only bystanders at the same time. So I guess what I'm looking for is what do you prepare to do to protect those ratings? Are you prepared to raise capital if that's what the agencies need to see? Where do investment-grade ratings stand on a priority scale for you?

Oh, yeah. The ratings are a very high priority for us. And we've said on several occasions that maintaining investment-grade ratings are important to us and very central to the way we want to operate our business models as an international exploration company, as a company that is leading a project selling LNG volumes around the world, et cetera. So it's very important to us.

Certainly, we've got a lot of flexibility, in our opinion, before we would need to raise capital in order to address concerns. I think one of the issues is, are the concerns reasonable and are they addressable by simple knobs that one could turn? We talked about the dividend earlier. We've talked about asset sales. We mentioned north of $1 billion in the near term that would more than fund – in addition to our discretionary cash flow would more than fund the $2.8 billion budget.

We've got a list of assets beyond that that we're actively working and would expect to be able to execute during 2016. Things that when Al talks about our net debt staying flat or reducing, the big variable in reducing leverage there is execution against the asset sales. And if for some reason, we needed to continue to reduce net debt and weren't able to execute on asset sales, then you continue to work down your list of items that become a little more distasteful the further down the list you go but are the types of things we would have to consider whether or not to pursue relative to where the rating agencies – where the ratings from all three agencies are and whether steps are defined by those agencies that they'd like to see if indeed they take action.

So it is – you're right. We're far more than bystanders. We're actively engaged in addressing this all very proactively, but we also want to make sure that we're doing things that are responsible relative to the true underlying risk and not – and that true underlying risk isn't always captured in a particular agency's view of an action that they may take at a point in time. So we're just trying to take it all in balance and be responsible and iterative in our approach.

R. A. Walker - Chairman, President & Chief Executive Officer

I've answered this question as well as Bob in a lot of other settings, and I think that the variables that we have that are most controllable for the management team here are reducing the capital plan, which, as of today, you can see our motivation there by reducing our capital plan year-over-year 50%, 70% lower than it was in 2014. Also looking at continuing to do asset sales and monetizations, which we have our long and very successful track record of doing. And as the question was asked earlier, and I think Bob appropriately replied, as we look at the yield associated with our common stock at 3%, that's historically high for us. So we look forward to discussing that with our board, and I believe those are the most important variables in the near term that we can address.

Harry Mateer - Barclays Capital, Inc.

Okay. Thanks for that. And then I guess on the upcoming maturity, you mentioned your plans to refinance it. But it looks like you're planning to spend or seeking approval to spend more than the $1.8 billion you indicated as maintenance capital. So, I guess my question is why not pull back on spending even more and then use asset sale proceeds or other sources of cash to pay down that maturity and actually delever instead of just looking to refinance it?

R. A. Walker - Chairman, President & Chief Executive Officer

Well, I mean there's a lot of things that will go into March 1 that probably today would feel a little hollow in terms of my response, just because I'm not prepared today to go into detail around things we've not sought board approval for and I think it's just appropriate that we wait and have that conversation with our board first. But our business is, as we see it today philosophically, is about preservation and we do think there are things that we can invest in intermediate and long cycle that in fact do just that. But I think at $2.8 billion with a $1.8 billion maintenance number, our ability in this environment to hold oil volumes flat year-over-year on a divestiture-adjusted basis and our only decline in actual volume coming from gas properties that we're not investing in is a pretty good indication of what we feel like is the way in which we want to manage through a very difficult and challenging period and yet have it be capital-responsive to the environment that the hydrocarbon prices are giving us.

If you allow yourself to continue to go completely into hibernation and things come out at some point from the cycle and you're not prepared to then take advantage of what you can do, then we've somewhat allowed ourselves to not maximize our equity return for the costs associated with the credit profile. And I think Bob addressed beautifully exactly what we feel like we want to do in order to maintain the highest credit quality as possible at the same time not stall out our equity story.

Harry Mateer - Barclays Capital, Inc.

Okay. Thanks, guys.

R. A. Walker - Chairman, President & Chief Executive Officer

You bet.

Operator

This concludes our question-and-answer session. I'd like to turn the conference back over to Al Walker for any closing remarks.

R. A. Walker - Chairman, President & Chief Executive Officer

Well, thank you. And I think today, you saw as evidence that our management team is committed to a much lower capital spend than I think practically anyone anticipated. I think also you've heard from us today, we'll go into greater detail on March 1 about how we get to that $1.8 billion of maintenance CapEx. I've talked repeatedly about our – what we believe is a very attractive year-over-year sales volume that we're able to achieve and only declines coming from natural gas properties that we're not investing in.

I also made a comment or two, and I'll just highlight it again, we have extremely good line of sight today for monetizations in excess of $1 billion, which we hope to be announcing between here and our March 1 conference call. We think that would and should address a lot of the concerns and questions that have been posed to us about how we intend to fund our activities in 2016.

And I think one of the things that has probably been lost in the scheme of just exactly who we are and what we are, but I've tried I think almost every call to emphasize it, we are a mix of conventional and unconventional resources. And in 2016, you're seeing the benefit of conventional assets coming into the production profile and that's a very different opportunity set than a lot of other companies have.

I think that nice cocktail of mix between conventional and unconventional will continue to resonate. I think you'll see it in the way in which our performance plays out through the year. And I do think, and I know a lot of companies talk about this, I'm going to say it again, we have an exceptional culture with great employees and a tremendous track record of achieving what we established for the year as what we think we can achieve and want to achieve and typically go beyond that. So I don't think 2016 will be any different than that.

It's definitely going to be a tough year, but the opportunities we have I think are quite significant. And I also think the way in which we manage our capital, we manage our business, and we have a culture that can succeed in any environment will be quite important as we get through this year and the years to come after this.

So I appreciate the support we've seen from a lot of investors through this very difficult period. Those of you who that have hung in there with us, we greatly appreciate it. Those of you that are new to the investment, we look forward to making sure that everybody feels that we're doing everything we possibly can. And with that, operator, we will call it a day and look forward to talking to everybody on March 1. Thank you

Operator

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.

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